Navigating the Infrastructure Landscape: Quant Infrastructure Fund vs Kotak Infra & Eco Reform Fund
July 29, 2024
The Indian infrastructure sector continues to be a critical driver of the nation’s economic growth in 2024. With a focus on enhancing connectivity, improving urban infrastructure, and boosting the overall quality of life, the sector has received substantial attention and investment from the government and private players.
Under Interim Budget 2024-25, capital investment outlay for infrastructure has been increased by 11.1% to Rs 11.11 lakh crore (USD 133.86 billion), which would be 3.4 % of GDP. To meet India’s aim of reaching a USD 5 trillion economy by 2025, infrastructure development is the need of the hour.
Current State of the Indian Infrastructure Sector
As of 2024, the Indian infrastructure sector is characterised by several key developments:
- Massive Investments: Both public and private sectors are pouring significant investments into infrastructure projects, covering transportation (roads, railways, airports), urban development (smart cities, affordable housing), and utilities (water supply, electricity, renewable energy).[Read: Top 5 Mutual Funds Paving the Way to Wealth with Indian Road & Highway Stocks]
- Technological Integration: The adoption of advanced technologies such as artificial intelligence, IoT, and blockchain is transforming infrastructure projects, making them more efficient, cost-effective, and sustainable.
- Public-Private Partnerships (PPPs): PPP models continue to play a pivotal role in executing large-scale infrastructure projects, enabling resource pooling, risk-sharing, and faster project completion.
- Sustainability Focus: There is an increasing emphasis on green and sustainable infrastructure, with initiatives aimed at reducing carbon footprints, promoting renewable energy, and enhancing environmental resilience.
The Modi 3.0 full Budget, announced on July 23rd, 2024, underscores the importance of infrastructure development, introducing a range of initiatives aimed at fostering sustainable growth and modernisation.
The government has launched the National Infrastructure Pipeline (NIP), combined with other initiatives such as ‘Make in India’ and the production-linked incentives (PLI) scheme, to augment the growth of the infrastructure sector.
[Read: 5 Best Mutual Fund Types to Benefit During Modi’s Third Term]
A substantial portion of the budget is allocated to green infrastructure projects, including the development of solar and wind energy plants, electric vehicle charging infrastructure, and sustainable urban development projects. Significant investments are directed towards affordable housing schemes and sanitation projects, aiming to improve the quality of urban living and ensure access to basic amenities for all citizens.
However, critical challenges like project delays, cost overruns, land acquisition hurdles, and lack of sustainable practices persisted, necessitating transformative solutions in the next five years.
Given that, continued investment in infrastructure development is expected from the Modi 3.0 government, creating economic opportunities and benefiting companies in construction and related industries.
This optimistic outlook is promising for mutual funds concentrated in the infrastructure sector, presenting appealing long-term investment opportunities. Infrastructure mutual funds have become a popular choice for investors aiming to benefit from the growth and development of a nation’s physical and organisational frameworks.
These funds typically allocate investments across vital sectors such as transportation, energy, water, and telecommunications, all of which are essential for economic progress. In my previous mutual fund comparison article, I have covered a comprehensive analysis of the best infrastructure mutual funds for 2024, you may consider reading – ICICI Pru Infrastructure Fund vs DSP India T.I.G.E.R Fund
Here’s a comprehensive evaluation of the two prominent infrastructure mutual funds – Quant Infrastructure Fund vs Kotak Infra & Eco Reform Fund- which will assist you in making an informed investment decision for a sector allocation to your portfolio.
Quant Infrastructure Fund is an open-ended equity scheme that belongs to Quant Mutual Fund. It is a well-established sectoral fund launched in August 2007 and currently has an AUM of Rs 3,881.58 crore (as of June 30, 2024).
The scheme is a popular choice among investors seeking to benefit from the growth of the infrastructure sector. The fund aims to generate long-term capital appreciation by investing predominantly in equity and equity-related securities of companies engaged in the infrastructure sector. The fund focuses on identifying and investing in companies that stand to benefit from India’s ongoing and future infrastructure development projects. Quant Infrastructure Fund is benchmarked against Nifty Infrastructure – TRI as a primary index.
# – Kotak Infra & Eco Reform Fund
Kotak Infra & Eco Reform Fund is an open-ended equity scheme and belongs to Kotak Mahindra Mutual Fund. Launched in February 2008, it is a popular sector-oriented scheme that emphasises the infrastructure segment and currently holds an AUM of Rs 2,272.88 crore.
Kotak Infra & Eco Reform Fund presents a more thematic approach to infrastructure investing. The fund seeks to capitalise on the growth opportunities arising from India’s infrastructure development and economic reforms. The scheme invests in a mix of large-cap, mid-cap, and small-cap companies within the infrastructure sector. Kotak Infra & Eco Reform Fund is benchmarked against Nifty Infrastructure – TRI as a primary index.
Investment Style and Philosophy:
– Quant Infrastructure Fund: follows a bottom-up stock selection approach, emphasising companies with strong fundamentals, competitive advantages, and sustainable growth prospects within the infrastructure sector.
The fund invests across various sub-sectors within infrastructure, such as construction, power, transportation, and telecommunications. This diversification helps in mitigating risks associated with investing in a single category of stocks. The fund managers use a blend of qualitative and quantitative research to identify companies with robust financial health, experienced management teams, and significant growth potential.
– Kotak Infra & Eco Reform Fund: involves a top-down approach to sector selection, combined with a bottom-up stock selection process. The fund invests in sectors poised for growth due to infrastructure development and economic reforms, such as construction, energy, transportation, and financial services.
The fund managers look for companies with strong growth prospects, solid financials, and the ability to benefit from macroeconomic trends and government initiatives. The fund maintains a balanced exposure across various sectors linked to infrastructure and economic reforms, providing diversification and growth potential.
Both funds are managed by experienced professionals with a deep understanding of the infrastructure sector. The expertise of the fund manager plays a crucial role in the fund’s performance and ability to navigate market fluctuations.
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Performance Comparison: Rolling Returns
Scheme Name Absolute (%) CAGR (%) 1 Year 3 Years 5 Years 7 Years 10 Years Kotak Infra & Eco Reform Fund(G)-Direct Plan 43.46 37.26 24.30 18.34 21.58 Quant Infrastructure Fund(G)-Direct Plan 49.16 42.32 33.13 25.56 23.02 Infrastructure – Category Average 65.53 32.50 28.97 19.26 17.44 Benchmark – Nifty Infrastructure TRI 43.24 27.13 20.67 15.61 13.13 Data as of June 30, 2024
Do note past performance is not an indicator of future returns
The securities quoted are for illustration only and are not recommendatory.
(Source: ACE MF, data collated by PersonalFN Research)As we can see from the above table, both the Quant Infrastructure Fund and Kotak Infra & Eco Reform Fund have outperformed their benchmark, Nifty Infrastructure TRI, and their category average across all timeframes. However, it's crucial to remember past performance is not a guarantee of future results.
Here, Quant Infrastructure Fund shows consistent outperformance across all time horizons compared to both the Kotak Infra & Eco Reform Fund and the benchmark. Its higher returns indicate effective stock selection and sector allocation strategies.
The Kotak Infra & Eco Reform Fund displays strong performance, particularly in the 3-year and 10-year periods, showing stability and steady growth. It offers a diversified approach by investing in companies benefiting from economic reforms. However, it underperformed compared to the Quant Infrastructure Fund and category average in the 5-year and 7-year periods, suggesting it may not capitalise as effectively on short-to-medium-term opportunities.
Note that the fortunes of these funds are heavily tied to the performance of the infrastructure sector. Any headwinds faced by the sector can significantly impact their NAV. Moreover, past performance should not be the only element, it's important to note that one may consider other factors like portfolio holdings, risk profile, and investment philosophy before making a decision.
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Portfolio Composition: Asset Allocation of Schemes
Both Quant Infrastructure Fund and Kotak Infra & Eco Reform Fund are popular choices for investments in infrastructure sector-oriented funds, but their asset allocation strategies differ slightly.
Scheme Name Large Cap % Mid Cap % Small Cap % Kotak Infra & Eco Reform Fund 32.76 26.44 36.83 Quant Infrastructure Fund 48.11 11.65 30.58 Data as of June 30, 2024
Do note past performance is not an indicator of future returns
The securities quoted are for illustration only and are not recommendatory.
(Source: ACE MF, data collated by PersonalFN Research)Both infrastructure schemes have their assets invested across market capitalisation.
The Quant Infrastructure Fund has a significantly higher allocation to large-cap stocks compared to the Kotak Infra & Eco Reform Fund. This higher large-cap allocation suggests that the Quant Infrastructure Fund prioritises stability and lower risk, making it potentially more attractive to conservative investors looking for consistent performance.
Meanwhile, Kotak Infra & Eco Reform Fund has a growth-oriented approach with higher exposure to mid and small caps, potentially leading to higher volatility and higher potential returns. This suggests that the fund may be targeting higher returns by taking on additional risk.
Both funds have a considerable allocation to small-cap stocks, but the Kotak Infra & Eco Reform Fund has a slightly higher allocation (36.83%) compared to the Quant Infrastructure Fund (30.58%). Small-cap stocks are known for their high growth potential but also come with higher risk and volatility. The higher small-cap allocation in the Kotak Infra & Eco Reform Fund suggests a more aggressive investment strategy aiming to capture significant growth opportunities in the infrastructure sector.
The asset allocation differences highlight the contrasting risk-return profiles of these two infrastructure funds. For investors seeking a more conservative approach with potentially lower volatility, Quant Infrastructure Fund's larger allocation to large caps may be suitable. If you are comfortable with higher risk in exchange for the potential for higher growth, Kotak Infra & Eco Reform Fund's increased exposure to small caps could be appealing.
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Market Volatility: Risk Profile of Schemes
Investing in sectoral funds may offer benefits from the growth potential of the underlying sector, such as infrastructure; however, understanding the scheme's risk-reward profiles is crucial before investing.
Risk Ratio Kotak Infra & Eco Reform Fund Quant Infrastructure Fund Standard Deviation (3 Year) 14.32 20.36 Sharpe 0.57 0.41 Sortino 1.24 0.83 Data as of June 30, 2024
Do note past performance is not an indicator of future returns
The securities quoted are for illustration only and are not recommendatory.
(Source: ACE MF, data collated by PersonalFN Research)An investment with high volatility is considered riskier than an investment with low volatility; the higher the Standard Deviation, the higher the risk. Quant Infrastructure Fund exhibits a higher Standard Deviation (20.36%) compared to Kotak Infra & Eco Reform Fund (14.32%), indicating a higher level of volatility. This means the fund's returns have fluctuated more significantly over the past 3 years.
Both funds have Sharpe Ratios below 1, which implies that their returns haven't been significantly well-compensated for the level of risk undertaken. However, Kotak Infra & Eco Reform Fund's Sharpe Ratio (0.57) is slightly higher than the Quant Infrastructure Fund (0.41), indicating that it may have provided a better return per unit of risk.
The Sortino Ratios follow a similar trend as the Sharpe Ratios. Kotak Infra & Eco Reform Fund's Sortino Ratio (1.24) is higher than Quant Infrastructure Fund's (0.83), again suggesting potentially better risk-adjusted returns for Kotak Infra & Eco Reform Fund.
Remember, this comparison is just to give you an idea about the risk profile of the two best infrastructure mutual funds. Consider your risk tolerance and investment goals to determine which fund aligns better with your investment strategy.
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Top Holdings of the Schemes:
While both Quant Infrastructure Fund and Kotak Infra & Eco Reform Fund invest in the infrastructure sector, their specific holdings and sector allocation reveal some key differences:
Quant Infrastructure Fund Kotak Infra & Eco Reform Fund Company % Assets Company % Assets HDFC Bank Ltd. 10.45 Ultratech Cement Ltd. 3.59 Reliance Industries Ltd. 10.38 Bharti Airtel Ltd. 3.46 Tata Power Company Ltd. 7.70 Mahindra Logistics Ltd. 3.33 Treasury Bills 6.90 Larsen & Toubro Ltd. 3.31 Adani Power Ltd. 5.65 Solar Industries India Ltd. 3.17 Tata Steel Ltd. 4.89 Thermax Ltd. 2.94 Kalyani Steels Ltd. 4.59 Kalpataru Projects International Ltd. 2.86 Aegis Logistics Ltd. 4.41 Container Corporation Of India Ltd. 2.84 Life Insurance Corporation of India 4.27 Cummins India Ltd. 2.79 Container Corporation Of India Ltd. 3.63 Kajaria Ceramics Ltd. 2.79 Data as of June 30, 2024
Do note past performance is not an indicator of future returns
The securities quoted are for illustration only and are not recommendatory.
(Source: ACE MF, data collated by PersonalFN Research)The Quant Infrastructure Fund has a concentrated investment strategy, with significant exposure to a few large-cap stocks. Its top holdings include HDFC Bank Ltd. (10.45%), Reliance Industries Ltd. (10.38%), and Tata Power Company Ltd. (7.70%). This concentration in major players across the financial, energy, and industrial sectors indicates a focused approach aimed at leveraging high-growth potential sectors.
The fund also includes Treasury Bills (6.90%) for liquidity and safety, along with substantial investments in companies like Adani Power Ltd. (5.65%) and Tata Steel Ltd. (4.89%), emphasising its commitment to core infrastructure industries.
In contrast, the Kotak Infra & Eco Reform Fund adopts a more diversified approach. Its top holdings are spread across various sectors that benefit from infrastructure development and economic reforms. Notable investments include Ultratech Cement Ltd. (3.59%), Bharti Airtel Ltd. (3.46%), and Mahindra Logistics Ltd. (3.33%).
The fund's diversified sectoral approach, which also includes stakes in companies like Larsen & Toubro Ltd. (3.31%) and Solar Industries India Ltd. (3.17%), reflects its broader mandate to capture growth across multiple segments of the economy.
[Read: Unlock the Potential of Real Estate With These Top 5 Infrastructure Mutual Funds]
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Expense Ratio of the Schemes
When comparing sectoral funds, the Expense Ratio, which represents the annual fee charged, plays a crucial role in determining your returns. Here's a quick breakdown of Quant Infrastructure Fund vs Kotak Infra & Eco Reform Fund:
Scheme Name Direct Plan Expense Ratio Regular Plan Expense Ratio Quant Infrastructure Fund 0.66% 1.88% Kotak Infra & Eco Reform Fund 0.65% 2.00% Data as of June 30, 2024
Do note past performance is not an indicator of future returns
The securities quoted are for illustration only and are not recommendatory.
(Source: ACE MF, data collated by PersonalFN Research)Both Quant Infrastructure Fund and Kotak Infra & Eco Reform Fund have a significantly lower expense ratio for the Direct Plan compared to the Regular Plan. The marginal difference between the two is negligible, making both funds equally attractive from an expense ratio standpoint for direct plan investors.
In the case of regular plans, the Quant Infrastructure Fund has an expense ratio of 1.88%, which is slightly lower than the Kotak Infra & Eco Reform Fund's 2.00%. This 0.12% difference may seem minor, but over time, it can compound to a significant amount, especially for larger investments or over long investment horizons. This makes the Quant Infrastructure Fund a slightly more cost-effective option in this category.
Remember, a lower expense ratio translates to potentially higher returns over time, but a lower expense ratio should not be the only factor to be considered while investing in sectoral funds.
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Suitability of Investors to the Schemes:
Quant Infrastructure Fund's is best suited for investors who are looking for high growth potential and are willing to accept higher volatility in their investments. This fund has a concentrated investment strategy, focusing heavily on a few large-cap stocks in the financial, energy, and industrial sectors. With significant exposure to companies like HDFC Bank, Reliance Industries, and Tata Power, the fund aims to leverage high-growth opportunities within these sectors.
Kotak Infra & Eco Reform Fund's is designed for investors who prefer a more balanced and diversified approach. This fund invests across various sectors that are expected to benefit from infrastructure development and economic reforms, such as construction, telecommunications, and logistics. Its top holdings include companies like Ultratech Cement, Bharti Airtel, and Mahindra Logistics, indicating a strategy that captures growth across multiple segments.
Both funds invest in the infrastructure sector, which is inherently cyclical. This means their returns can fluctuate based on economic conditions. Investors comfortable with this volatility are suitable for either fund. However, note that these funds focus on carrying a concentrated portfolio related to a specific sector. Ensure they complement your existing portfolio allocation to spread risk.
To summarise…
The Indian infrastructure sector in 2024 is poised for substantial growth and modernisation, driven by significant government initiatives and investments highlighted in the Modi 3.0 Budget. The focus on comprehensive development, sustainability, and technological integration presents a promising landscape for investors. The choice between the Quant Infrastructure Fund and the Kotak Infra & Eco Reform Fund depends on your investment style, risk tolerance, and financial objectives.
However, careful research and consideration of your risk tolerance are crucial before investing in any sector-oriented fund. As always, consulting a SEBI-registered financial advisor can be invaluable to ensure optimal alignment with your specific investment objectives.
Remember, a well-diversified portfolio across market caps/sectors and asset classes may help manage overall risk while potentially benefiting from its growth potential.
Disclaimer: PersonalFN does not receive any monetary compensation from the fund house or scheme names stated in the article.
This article first appeared on PersonalFN here
